Saratoga Investment Corp. Announces Fiscal First Quarter 2021 Financial Results and Declares $0.40 Per Share Quarterly Dividend for the Quarter Ending May 31, 2020
Saratoga Investment Corp. (NYSE:SAR) reported its fiscal Q1 2021 results, revealing a decrease in net asset value (NAV) to $281.6 million from $304.3 million in the previous quarter, alongside earnings per share of ($2.02). The company declared a dividend of $0.40 per share, reflecting strong liquidity post a $43.1 million baby bond issuance. AUM stood at $482.9 million, up 17.9% year-over-year, while net investment income was $9 million, or $0.80 per share. Despite challenges posed by COVID-19, Saratoga maintains significant portfolio strength with 90% of loans rated highly.
- AUM increased 17.9% year-over-year to $482.9 million.
- Declared a dividend of $0.40 per share after raising capital through a $43.1 million baby bond.
- 90% of loans rated in the highest category, maintaining high credit quality.
- Portfolio remains strong with 73.4% in first lien debt.
- NAV decreased by $22.7 million from the previous quarter.
- Earnings per share declined to ($2.02), down from $2.39 in the prior quarter.
- Net unrealized depreciation on investments amounted to $32 million, reflecting a 6% reduction in fair value.
NEW YORK, July 08, 2020 (GLOBE NEWSWIRE) -- Saratoga Investment Corp. (NYSE:SAR) (“Saratoga Investment” or “the Company”), a business development company (“BDC”), today announced financial results for its 2021 fiscal first quarter.
Summary Financial Information
The Company’s summarized financial information is as follows:
| | For the quarter ended and as of May 31, 2020 | For the quarter ended and as of February 29, 2020 | For the quarter ended and as of May 31, 2019 | |||
| ($ in thousands except per share) | ||||||
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| NAV | 281,631 | 304,287 | 186,784 | |||
| NAV per share | 25.11 | 27.13 | 24.06 | |||
| Investment Income | 13,297 | 17,613 | 12,751 | |||
| Net Investment Income per share | 0.80 | 0.01 | 0.48 | |||
| Adjusted Net Investment Income per share | 0.51 | 0.61 | 0.60 | |||
| Earnings per share | (2.02 | ) | 2.39 | 0.99 | ||
| Dividends per share (declared) | 0.40 | 0.00 | 0.55 | |||
| Return on Equity – last twelve months | 9.9 | % | 23.6 | % | 11.7 | % |
| – annualized quarter | (30.9 | )% | 36.5 | % | 16.6 | % |
| Originations | 38,999 | 43,971 | 27,369 | |||
| Repayments | 9,350 | 70,100 | 26,917 | |||
“Coming off one of the most challenging quarters in our experience, we believe Saratoga is in a strong position to weather the increased economic challenges presented by COVID-19,” said Christian L. Oberbeck, Chairman and Chief Executive Officer of Saratoga Investment. “We believe our performance for the fiscal first quarter 2021 reflected the market’s economic difficulties, particularly widening spreads, and importantly the underlying strength of our financial position and ability to withstand the early stages of this crisis. Our quarterly metrics include LTM return on equity of
Following our recent baby bond raise and considering the current resiliency of our portfolio, the Board of Directors decided to declare a
Michael J. Grisius, President and Chief Investment Officer, added, “Portfolio management has become a significant part of our daily life. The bar for all investments has been significantly raised in this environment. Despite the current economic volatility, we continued to bring new platform investments into the portfolio, with two investments in new companies added this quarter, in addition to the success we continue to have with follow-ons in existing borrowers with strong business models and balance sheets, totaling
Business Update:
Saratoga Investment remains focused on ensuring the safety of its employees and the employees of its portfolio companies, while also managing its ongoing business activities. The Company continues to work collaboratively with its employees and portfolio companies to navigate the significant challenges created by the novel coronavirus (“COVID-19”) pandemic.
Saratoga Investment continues to take the necessary steps to ensure that its personnel can effectively operate remotely, and its senior management team and staff remain fully engaged. Thus far, the Company has not experienced any significant operational limitations, and has been capable of providing the necessary support or service that its portfolio companies have required.
Saratoga Investment has been actively engaged with its portfolio companies and continues to be pleased with the diligent and proactive actions taken by the portfolio company management teams and their ability to respond effectively to the continuing challenges in the current environment. The Company stands ready to assist them as they manage their respective businesses. While virtually every business has had some level of impact in the near-term, the ultimate impact of COVID-19 on any individual business remains unknown. Notwithstanding these uncertainties, based on the information we have in hand, the Company believes that its portfolio companies are generally taking the right steps to help mitigate both the near and long-term effect of COVID-19 on their businesses.
Saratoga Investment believes that its historically conservative approaches to investing, leverage utilization and maintaining solid levels of liquidity, put it in a position of strength going into this uncertain and challenging time. While no business can anticipate with clarity how long the displacement in the market and global economy will last, the Company believes that Saratoga Investment’s capital structure, liquidity and management experience will enable it to effectively navigate the challenges presented by COVID-19.
The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Such actions are creating disruption in global supply chains and adversely impacting a number of industries. The continued development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19. Nevertheless, COVID-19 presents material uncertainty and risks with respect to the underlying value of the Company’s portfolio companies, the Company’s business, financial condition, results of operations and cash flows, such as the potential negative impact to financing arrangements, Company decisions to delay, defer and/or modify the character of dividends in order to preserve liquidity, increased costs of operations, changes in law and/or regulation, and uncertainty regarding government and regulatory policy.
Discussion of Financial Results for the Quarter ended May 31, 2020:
As of May 31, 2020, Saratoga Investment’s assets under management (“AUM”) was
For the three months ended May 31, 2020, total investment income of
As compared to the three months ended May 31, 2019, in addition to the investment income increase of
Net investment income on a weighted average per share basis was
Net investment income yield as a percentage of average net asset value (“Net Investment Income Yield”) was
Net Asset Value (“NAV”) was
- For the three months ended May 31, 2020,
$9.0 million of net investment income and$0.3 million deferred tax benefit on net unrealized depreciation were earned, partially offset by$32.0 million of net unrealized depreciation on investments. There were no distributions to shareholders during the quarter and no activity related to the Company’s At-the-Market (“ATM”) equity offering or share repurchase plan.
NAV per share was
- For the three months ended May 31, 2020, NAV per share decreased by
$2.02 per share, reflecting the$31.7 million , or$2.82 net realized and unrealized loss on investments, offset by the$9.0 million , or$0.80 net investment income.
Return on equity for the last twelve months ended May 31, 2020, was
Earnings per share for the quarter ended May 31, 2020, was (
Investment portfolio activity for the quarter ended May 31, 2020:
- Cost of investments made during the period:
$39.0 million , including investments in two new portfolio companies. - Principal repayments during the period:
$9.4 million .
Additional Financial Information
For the fiscal quarter ended May 31, 2020, Saratoga Investment reported net investment income of
Adjusted for the incentive fee accrual related to net capital gains, the net investment income was
Total expenses, excluding interest and debt financing expenses, base management fees and incentive management fees, increased from
Portfolio and Investment Activity
As of May 31, 2020, the fair value of Saratoga Investment’s portfolio was
For the fiscal quarter ended May 31, 2020, Saratoga Investment invested
As of May 31, 2020, the weighted average current yield on Saratoga Investment’s portfolio based on fair values for the twelve months ended was
Liquidity and Capital Resources
As of May 31, 2020, Saratoga Investment had no outstanding borrowings under its
With
On June 24, 2020, the Company issued
On March 16, 2017, Saratoga Investment entered into an equity distribution agreement with Ladenburg Thalmann & Co. Inc., through which Saratoga may offer for sale, from time to time, up to
On April 24, 2020, we entered into a fourth amendment to the Credit Facility with Madison Capital Funding LLC to, among other things:
- Permit certain amendments related to the Paycheck Protection Program (“Permitted PPP Amendment”) to Loan Asset Documents;
- Exclude certain debt and interest amounts allowed by the Permitted PPP Amendments from certain calculations related to Net Leverage Ratio, Interest Coverage Ratio and EBITDA; and
- Exclude such Permitted PPP Amendments from constituting a Material Modification.
Dividend
Saratoga Investment has raised its dividend for the past five years. In light of the dramatic uncertainties currently present in the economy, and to ensure we retain liquidity to not only support our current portfolio companies during these challenged times, but to also create new, important relationships through the provision of critically crucial liquidity in new situations, Saratoga Investment’s Board of Directors (the “Board of Directors”) deferred its dividend last quarter.
Furthermore, while many BDCs have spillover obligations from prior years, representing taxable income from past obligations yet to be distributed, Saratoga Investment has historically managed its distributions conservatively so it is current with all spillover obligations, other than those related to our Easy Ice and Censis long-term net capital gains. This therefore means that Saratoga Investment is not obligated to pay current dividends related to historical earnings and enabling preservation of precious liquidity in this challenging market environment.
Following Saratoga Investment’s recent baby bond raise and the current resiliency of its portfolio, the Board of Directors declared a
The Board of Directors declared this dividend on July 7, 2020 and is payable on August 12, 2020, to common stockholders of record on July 27, 2020. Shareholders have the option to receive payment of the dividend in cash, or receive shares of common stock pursuant to the Company’s DRIP.
In fiscal year 2020, the Company declared a quarterly dividend of
Share Repurchase Plan
In fiscal year 2015, the Company announced the approval of an open market share repurchase plan that allows it to repurchase up to 200,000 shares of its common stock at prices below its NAV as reported in its then most recently published financial statements. During fiscal year 2017, the share repurchase plan was increased to 600,000 shares of common stock, and during fiscal years 2018, 2019 and 2020, this share repurchase plan was extended for another year at the same level of approval, currently through January 15, 2021. On May 4, 2020, the Board of Directors increased the share repurchase plan to 1.3 million shares of common stock. As of May 31, 2020, the Company purchased 218,491 shares of common stock, at the average price of
Saratoga Investment made no purchases of common stock in the open market during the current fiscal year.
| 2021 Fiscal First Quarter Conference Call/Webcast Information | |
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| When: | Thursday, July 9, 2020, 10:00 a.m. Eastern Time (ET) |
| Call: | Interested parties may participate by dialing (877) 312-9208 (U.S. and Canada) or (678) 224-7872 (outside U.S. and Canada). |
| A replay of the call will be available from 1:00 p.m. ET on Thursday, July 9, 2020, through 1:00 p.m. ET on Thursday, July 16, 2020, by dialing (855) 859-2056 (U.S. and Canada) or (404) 537-3406 (outside U.S. and Canada), passcode for both replay numbers: 8978338. | |
| Webcast: | Interested parties may access a simultaneous webcast of the call and find the Q1 2021 presentation by going to the “Events & Presentations” section of Saratoga Investment Corp.’s investor relations website, http://ir.saratogainvestmentcorp.com/events-presentations |
About Saratoga Investment Corp.
Saratoga Investment is a specialty finance company that provides customized financing solutions to U.S. middle-market businesses. The Company invests primarily in senior and unitranche leveraged loans and mezzanine debt, and, to a lesser extent, equity to provide financing for change of ownership transactions, strategic acquisitions, recapitalizations and growth initiatives in partnership with business owners, management teams and financial sponsors. Saratoga Investment’s objective is to create attractive risk-adjusted returns by generating current income and long-term capital appreciation from its debt and equity investments. Saratoga Investment has elected to be regulated as a business development company under the Investment Company Act of 1940 and is externally-managed by Saratoga Investment Advisors, LLC, an SEC-registered investment advisor focusing on credit-driven strategies. Saratoga Investment owns two SBIC-licensed subsidiaries and manages a
Forward Looking Statements
Statements included herein contain certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events or our future performance or financial condition. Forward-looking statements can be identified by the use of forward looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or negative versions of those words, other comparable words or other statements that do not relate to historical or factual matters. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including but not limited to the impact of the COVID-19 pandemic and the pandemic's impact on the U.S. and global economy, as well as those described from time to time in our filings with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which it is made. Saratoga Investment Corp. undertakes no duty to update any forward-looking statements made herein or on the webcast/conference call, whether as a result of new information, future developments or otherwise, except as required by law.
Financials
| Saratoga Investment Corp. | ||||||||
| Consolidated Statements of Assets and Liabilities | ||||||||
| May 31, 2020 | February 29, 2020 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Investments at fair value | ||||||||
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| Affiliate investments (amortized cost of | 18,041,254 | 18,485,854 | ||||||
| Control investments (amortized cost of | 43,975,865 | 46,703,192 | ||||||
| Total investments at fair value (amortized cost of | 482,947,232 | 485,631,974 | ||||||
| Cash and cash equivalents | 12,842,608 | 24,598,905 | ||||||
| Cash and cash equivalents, reserve accounts | 12,952,393 | 14,851,447 | ||||||
| Interest receivable (net of reserve of | 4,308,981 | 4,810,456 | ||||||
| Management fee receivable | 285,588 | 272,207 | ||||||
| Other assets | 660,775 | 701,007 | ||||||
| Total assets | $ | 513,997,577 | $ | 530,865,996 | ||||
| LIABILITIES | ||||||||
| Revolving credit facility | $ | - | $ | - | ||||
| Deferred debt financing costs, revolving credit facility | (489,361 | ) | (512,628 | ) | ||||
| SBA debentures payable | 170,000,000 | 150,000,000 | ||||||
| Deferred debt financing costs, SBA debentures payable | (2,892,760 | ) | (2,561,495 | ) | ||||
| 2025 Notes payable | 60,000,000 | 60,000,000 | ||||||
| Deferred debt financing costs, 2025 notes payable | (1,953,054 | ) | (2,046,735 | ) | ||||
| Base management and incentive fees payable | 3,552,457 | 15,800,097 | ||||||
| Deferred tax liability | 1,070,678 | 1,347,363 | ||||||
| Accounts payable and accrued expenses | 1,580,913 | 1,713,157 | ||||||
| Interest and debt fees payable | 994,956 | 2,234,042 | ||||||
| Directors fees payable | 63,000 | 61,500 | ||||||
| Due to manager | 439,730 | 543,842 | ||||||
| Total liabilities | 232,366,559 | 226,579,143 | ||||||
| NET ASSETS | ||||||||
| Common stock, par value | ||||||||
| authorized, 11,217,545 and 11,217,545 common shares issued and outstanding, respectively | 11,218 | 11,218 | ||||||
| Capital in excess of par value | 289,476,991 | 289,476,991 | ||||||
| Total distributable earnings (loss) | (7,857,191 | ) | 14,798,644 | |||||
| Total net assets | 281,631,018 | 304,286,853 | ||||||
| Total liabilities and net assets | $ | 513,997,577 | $ | 530,865,996 | ||||
| NET ASSET VALUE PER SHARE | $ | 25.11 | $ | 27.13 | ||||
| Asset Coverage Ratio | 569.4 | % | 607.1 | % | ||||
| Saratoga Investment Corp. | |||||||||
| Consolidated Statements of Operations | |||||||||
| (unaudited) | |||||||||
| For the three months ended | |||||||||
| May 31, 2020 | May 31, 2019 | ||||||||
| INVESTMENT INCOME | |||||||||
| Interest from investments | |||||||||
| Interest income: | |||||||||
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| Affiliate investments | 398,370 | 249,325 | |||||||
| Control investments | 1,133,584 | 1,648,146 | |||||||
| Payment-in-kind interest income: | |||||||||
| Non-control/Non-affiliate investments | 581,946 | 151,897 | |||||||
| Affiliate investments | 46,223 | 40,150 | |||||||
| Control investments | 34,782 | 985,869 | |||||||
| Total interest from investments | 12,150,467 | 11,603,127 | |||||||
| Interest from cash and cash equivalents | 11,796 | 51,359 | |||||||
| Management fee income | 634,572 | 629,516 | |||||||
| Structuring and advisory fee income* | 313,306 | 316,375 | |||||||
| Other income* | 187,000 | 150,807 | |||||||
| Total investment income | 13,297,141 | 12,751,184 | |||||||
| OPERATING EXPENSES | |||||||||
| Interest and debt financing expenses | 2,563,876 | 3,864,576 | |||||||
| Base management fees | 2,160,528 | 1,812,169 | |||||||
| Incentive management fees expense (benefit) | (1,858,310 | ) | 2,113,169 | ||||||
| Professional fees | 386,888 | 395,126 | |||||||
| Administrator expenses | 556,250 | 500,000 | |||||||
| Insurance | 67,726 | 64,619 | |||||||
| Directors fees and expenses | 60,000 | 60,000 | |||||||
| General & administrative | 350,814 | 258,601 | |||||||
| Income tax expense (benefit) | (8,945 | ) | 2,136 | ||||||
| Total operating expenses | 4,278,827 | 9,070,396 | |||||||
| NET INVESTMENT INCOME | 9,018,314 | 3,680,788 | |||||||
| REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | |||||||||
| Net realized gain (loss) from investments: | |||||||||
| Non-control/Non-affiliate investments | 8,480 | - | |||||||
| Net realized gain (loss) from investments | 8,480 | - | |||||||
| Net change in unrealized appreciation (depreciation) on investments: | |||||||||
| Non-control/Non-affiliate investments | (24,422,894 | ) | 2,393,191 | ||||||
| Affiliate investments | (2,444,252 | ) | 169,944 | ||||||
| Control investments | (5,083,223 | ) | 1,425,995 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (31,950,369 | ) | 3,989,130 | ||||||
| Net change in provision for deferred taxes on unrealized (appreciation) depreciation on investments | 267,740 | (20,930 | ) | ||||||
| Net realized and unrealized gain (loss) on investments | (31,674,149 | ) | 3,968,200 | ||||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | (22,655,835 | ) | $ | 7,648,988 | ||||
| WEIGHTED AVERAGE - BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE | $ | (2.02 | ) | $ | 0.99 | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED | 11,217,545 | 7,746,187 | |||||||
| * Certain prior period amounts have been reclassified to conform to current period presentation. | |||||||||
Supplemental Information Regarding Adjusted Net Investment Income, Adjusted Net Investment Income Yield and Adjusted Net Investment Income per share
On a supplemental basis, Saratoga Investment provides information relating to adjusted net investment income, adjusted net investment income yield and adjusted net investment income per share, which are non-GAAP measures. These measures are provided in addition to, but not as a substitute for, net investment income, net investment income yield and net investment income per share. Adjusted net investment income represents net investment income excluding any capital gains incentive fee expense or reversal attributable to realized and unrealized gains. The management agreement with the Company’s advisor provides that a capital gains incentive fee is determined and paid annually with respect to cumulative realized capital gains (but not unrealized capital gains) to the extent such realized capital gains exceed realized and unrealized losses for such year. In addition, Saratoga Investment accrues, but does not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate. All capital gains incentive fees are presented within net investment income within the Consolidated Statements of Operations, but the associated realized and unrealized gains and losses that these incentive fees relate to, are excluded. As such, Saratoga Investment believes that adjusted net investment income, adjusted net investment income yield and adjusted net investment income per share is a useful indicator of operations exclusive of any capital gains incentive fee expense or reversal attributable to gains. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. The following table provides a reconciliation of net investment income to adjusted net investment income, net investment income yield to adjusted net investment income yield and net investment income per share to adjusted net investment income per share for the quarters ended May 31, 2020, and May 31, 2019.
| For the three months ended May 31, | |||||||
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| Net Investment Income | $ | 9,018,314 | $ | 3,680,788 | |||
| Changes in accrued capital gains incentive fee expense/(reversal) | (3,250,239 | ) | 954,007 | ||||
| Adjusted net investment income | 5,768,075 | 4,634,795 | |||||
| Net investment income yield | 12.3 | % | 8.0 | % | |||
| Changes in accrued capital gains incentive fee expense/(reversal) | (4.4 | %) | 2.1 | % | |||
| Adjusted net investment income yield (1) | 7.9 | % | 10.1 | % | |||
| Net investment income per share | $ | 0.80 | $ | 0.48 | |||
| Changes in accrued capital gains incentive fee expense/(reversal) | $ | (0.29 | ) | $ | 0.12 | ||
| Adjusted net investment income per share (2) | $ | 0.51 | $ | 0.60 | |||
- Adjusted net investment income yield is calculated as adjusted net investment income divided by average net asset value.
- Adjusted net investment income per share is calculated as adjusted net investment income divided by weighted average common shares outstanding.
Contact: Henri Steenkamp
Saratoga Investment Corp.
212-906-7800
Roland Tomforde
Broadgate Consultants
212-232-2222
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